VZCZCXYZ0012
PP RUEHWEB

DE RUEHBU #0791/01 1132108
ZNR UUUUU ZZH
P 232108Z APR 07
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC PRIORITY 7927
INFO RUEHAC/AMEMBASSY ASUNCION PRIORITY 6112
RUEHBR/AMEMBASSY BRASILIA PRIORITY 5972
RUEHCV/AMEMBASSY CARACAS PRIORITY 1196
RUEHGT/AMEMBASSY GUATEMALA PRIORITY 0191
RUEHMN/AMEMBASSY MONTEVIDEO PRIORITY 6379
RUEHSG/AMEMBASSY SANTIAGO PRIORITY 0357
RUEHVL/AMEMBASSY VILNIUS PRIORITY 0027
RUEHSO/AMCONSUL SAO PAULO PRIORITY 3254
RUEAIIA/CIA WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/USDOC WASHINGTON DC PRIORITY

UNCLAS BUENOS AIRES 000791 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
NSC FOR JOSE CARDENAS, ROD HUNTER 
PASS FED BOARD OF GOVERNORS FOR KROSZNER, ROBITAILLE 
PASS EXIM BANK FOR MICHELE WILKINS 
PASS OPIC FOR JOHN SIMON, GEORGE SCHULTZ, RUTH ANN NICASTRI 
USDOC FOR 4322/ITA/MAC/OLAC/PEACHER 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV AR
SUBJECT: FOREIGN BANKS SEE STRONG GROWTH OPPORTUNITIES IN 
ARGENTINA, BUT WEIGHED AGAINST AN UNPREDICTABLE OPERATING 
ENVIRONMENT 
 
 
 Summary 
------- 
¶1. (SBU) Representatives of foreign banks operating in 
Argentina praised the GoA's prudent fiscal policy, predicted 
at least two more years of high growth, and discounted the 
possibility of an external shock-led crisis anytime soon, 
during an April 10 lunch for the Ambassador hosted by the 
Argentine Bankers Association.  Nevertheless, they 
acknowledged that weak rule of law, inconsistent rules of the 
game, and unpredictable government intervention in the 
economy were deterrents to large-scale, long-term foreign 
investment.  The consensus was that the GoA would continue 
with current policies after the October election, although 
several predicted that President Kirchner would tighten 
fiscal policy in 2008 after loosening the purse strings 
during the election year.  End Summary. 
 
Foreign Banks Brief on Argentine Financial Sector 
--------------------------------------------- ---- 
¶2. (SBU) The Argentine Bank Association (ABA) hosted the 
Ambassador and Econoffs to lunch on April 10 to discuss the 
state of Argentina's financial sector, their views on 
opportunities and risks in the Argentine economy, and their 
predictions on the sustainability of GoA economic policies. 
Participants included ABA President Mario Vicens and 
Presidents/Directors of the Argentine branches of JP Morgan 
Chase Bank, American Express Bank, Citibank, Deutsche Bank, 
HSBC Bank, BNP Paribas, Standard Bank, Banco do Brasil, Banco 
Cetelem, BBVA Banco Frances, and Banco Rio de la Plata. 
(Note:  Founded in 1999, ABA's 37 members and associates 
collectively employ over 20,000 and represent approximately 
50% of Argentine banking sector assets, 55% of total 
deposits, and 49% of total loans.  End Note). 
 
Banks Happy with Two More Years of High Growth 
--------------------------------------------- - 
¶3. (SBU) ABA President Vicens highlighted the positive 
developments in Argentina's economy and financial sector. 
Banks (foreign and domestic) have expanded rapidly following 
the 2001/2002 financial crisis, mirroring the country's 
strong economic recovery.  (Note:  Following massive 
disintermediation in the wake of the crisis, total financial 
system assets increased 110% in nominal terms from 2001 to 
¶2006.  Deposits grew almost 160% and loans 34% during the 
same period.  End Note).  Vicens and others pres praised the 
GoA's macroeconomic performance as prudent and cautious, 
highlighting the importance of the primary fiscal and current 
account surpluses -- both evidence of the high savings rate 
in Argentina. 
 
¶4. (SBU) Deutsche Bank's rep stated that, despite some 
longer-term uncertainties, he thought most local analysts 
were correct that the economy would continue growing at a 
high rate through 2007 and 2008.  Revealing their short-term 
horizon, all present agreed that they would be happy if the 
GoA's policies gave them two more good years. 
 
¶5. (SBU) For the longer term, JP Morgan's rep noted that he 
was unconcerned about external shocks, such as a fall in 
commodity prices, causing problems for the economy.  However, 
JP Morgan was factoring political uncertainties into its risk 
analysis for the market, including the Kirchner government's 
growing ties to Chavez' Venezuela, tensions between Uruguay 
and Argentina, and the GoA's recent bellicose statements and 
actions with regards to the Malvinas (Falklands). 
Nevertheless, JP Morgan and others argued that Argentina was 
actually a safer bet for financial sector investments than 
many other emerging market countries, given that it had 
already gone through its default and another one was highly 
unlikely for the foreseeable future. 
 
"Short Term Policies Equal Short Term Investments" 
--------------------------------------------- ----- 
 
 
¶6. (SBU) Vicens acknowledged that uncertainties related to 
the GoA's interventionist tendencies, and willingness to 
change laws, impose new regulations and taxes, and general 
unpredictability, deterred investment and particularly 
large-scale investment in sectors requiring a longer term 
view (i.e., the energy sector).  Others present noted that 
the private sector responded to the GoA's short term focus 
(on the October elections) with short term investments. 
There is a lot of interest in relatively high-yielding 
Argentine financial instruments, while investment in the real 
economy is primarily in areas such as tourism and 
construction, where quick turnaround is possible. 
 
Post-Election Predictions 
------------------------- 
¶7. (SBU) Prompted by Ambassador's request for predictions for 
post-October elections, the general consensus was that either 
Nestor Kirchner or his wife Cristina would easily win the 
Presidency, and neither would make significant changes to 
current macro or micro policies.  The most the JP Morgan rep 
expected was for the fiscally conservative Kirchner to slow 
down expenditures in 2008, after allowing spending to 
increase rapidly in the run-up to the elections (Note: 
Government expenditures are growing at a 40% pace so far in 
2007, significantly faster than the also impressive growth in 
revenues of about 30%.  End Note).  Vicens, echoed by several 
others, also predicted that a Cristina Kirchner 
administration would have a stronger focus on foreign affairs 
and building Argentina's image abroad, but would not differ 
significantly from the current administration in other ways. 
WAYNE